In the past year, I’ve written so much about Ireland and its economy (here, here, here, here, and here) that I’m in the habit of keeping an eye out for news about Ireland, like a recent émigré looking for news of home. The thing is, I’m not Irish. (As far as I know, I have no Irish blood. Scottish, yes. Irish, not so far, but its a possibility.) I’ve never even been to Ireland (though I’d love to visit, someday.
I keep an eye on news about Ireland’s economy, because it’s regularly held up as an example we should follow here. At least in the headlines. Read a bit deeper, and it’s a different story. Take, for example, a recent New York Times article about Ireland and austerity.
In my browser, the header for the NYT article blares, “Ireland’s Austerity Hailed As Example of Financial Survival.” The headline tells a somewhat different story: “In Ireland, Austerity Is Praised but Painful.” Deeper into the article lies the truth: Ireland’s austerity is praised, painful, and not working.
But the effects of austerity have pummeled Ireland's fragile economy, leaving scars that are likely to take years to heal. Nearly 40,000 Irish have fled the country this year alone in search of a brighter future elsewhere; the trend is expected to continue.
"This is still an insolvent economy," said Constantin Gurdgiev, an economist and lecturer at Trinity College in Dublin. "Just because we're playing a good-boy role and not making noises like the Greeks doesn't mean Ireland is healthy."
The German chancellor, Angela Merkel, recently praised the Irish prime minister, Enda Kenny, for setting an "outstanding example," while the French president, Nicolas Sarkozy, declared that Ireland was already "almost out of the crisis."
Underneath the surface, however, the grinding reality of Irish life belies those glowing commendations.
But you have to read even deeper, about two thirds of the way into the article, before you get to the point.
Pain is inevitable in any nation overwhelmed by its debts, which in Ireland continue to climb rather than fall as a percentage of gross domestic product. But the Irish example shows the dangers of taking from ordinary people to pay off creditors rather than sharing the burden more broadly.
For example, welfare payments have steadily been reduced even as the unemployment rate has ticked up to 14.5 percent, and is forecast to remain high at least through next year.
Ireland may be “playing a good-boy role and not making noises like the Greeks,” but it hasn’t been rewarded with anything resembling a recovery. In consumer-driven economy, a 3.8 percent drop in retail sales -- even on basic goods, like textbooks, shoes, clothing, etc. -- does not a recovery make. If anything, Ireland’s working- and middle classes are being squeezed even tighter. One nursing assistant whose salary has been cut told the reporter “a lot of people are just trying to get by week to week.”
And the result? There have been signs of improvement, but not enough to solve Ireland’s problems through austerity alone. The problems that led Ireland to seek a bailout haven’t gotten noticeably better. Growth forecasts for 2012 have been cut in half, to less than 1 percent, in part because of the austerity policies, which the Economic and Social Research Institute in Dublin called “reminiscent of policy during the Great Depression, when a mounting crisis was confronted by an orthodoxy that resulted in great poverty that could have been avoided.”
It’s not going to get any better, because austerity is also costing Ireland a generation’s worth of “brain drain.” The article says 40,000 have fled the country for better futures elsewhere. That exodus of mostly students and construction workers in 2008 may have kept unemployment in Ireland lower than it has been. But now, the article says, high-skilled professionals are pulling up stakes and leaving the country, taking their families with them.
Think about that. Instead of “playing the good-boy role” and bearing the burden of the bailout as demanded of them, Ireland’s working- and middle-classes are getting while the getting’s good -- taking their earning power and revenue-generating potential with them. So, Ireland’s austerity policies have effectively reduced its best hope for increased revenues and recovery: Irish people who are working, buying goods and services, and paying taxes.
Austerity will not narrow budget deficits, because the austerity imposed in Ireland and proposed here is the job-killing variety. It’s simple, really. Fewer people working means fewer people earning paychecks, which means fewer people paying taxes, which means less revenue. Austerity is just another word for revenue reduction -- the logic of which is that one enhances one’s ability to pay one’s debts by reducing one’s income. It’s a vicious circle, the more you cut, the more you need to cut, because the more you cut the less you have coming in to pay your debts -- which now look even bigger compared to your reduced income. So, you cut until there’s little left to cut.
Nothing about the austerity imposed in Ireland and proposed in the U.S. is designed to be temporary, for it destroys foundations of the social contract, that might make economic comeback possible for working- and middle-class families: education, health care, etc.
Without investment these foundations will crumble, taking their benefits with them, and in the event of a economic rebound, far fewer will be able to take advantage of it and begin the climb back to something resembling their previous standard of living. Neither will their children or the grandchildren, as the advantages their grandparents passed down to their parents are lost to austerity.
Thus, Ireland’s government took an axe to spending, only to see deficits widen. The result? More austerity.
If anything, the exodus of Ireland’s working- and middle classes is a kind of silent protest. Burned by Ireland’s austerity policies, they’re voting with their feet by getting on the “first thing smoking,” in search of brighter futures elsewhere. At this rate, it’s unlikely they’ll be coming back, because the same forces that have occupied Washington, occupy Dublin and successfully forced ordinary Irish to pay the bill for the same financial sector shenanigans that led to our very own meltdown, and got the ball rolling for a global economic crisis..
But for the Irish who remain at home, protest may be anything but silent. Earlier this year I wrote that the initial flare of Irish protests seemed to have morphed into resignation much like that seen in other countries where austerity has taken hold.
If the Irish government wants to know the potential cost of austerity, it need look no further than Lithuania (#29 on the Heritage index) to see what austerity looks like.
Faced with rising deficits that threatened to bankrupt the country, Lithuania cut public spending by 30 percent -- including slashing public sector wages 20 to 30 percent and reducing pensions by as much as 11 percent. Even the prime minister, Andrius Kubilius, took a pay cut of 45 percent.
…But austerity has exacted its own price, in social and personal pain.
Pensioners, their benefits cut, swamped soup kitchens. Unemployment jumped to a high of 14 percent, from single digits -- and an already wobbly economy shrank 15 percent last year.
Remarkably, for the most part, the austerity was imposed with the grudging support of Lithuania's trade unions and opposition parties, and has yet to elicit the kind of protest expressed by the regular, widespread street demonstrations and strikes seen in Greece, Spain and Britain.
…Indeed, outside of Ireland, no country in Europe has come close to replicating Lithuania's severe spending cuts without the aid of the International Monetary Fund. Ireland passed the most austere budget in the country's history, and public sector pay cuts were a centerpiece of the government's reform effort.
…"From a credit rating perspective, Lithuania has put itself on positive trajectory," said Kenneth Orchard, a senior credit officer in Moody's sovereign risk group.
As European nations consider what the social and political costs will be when they take steps to cut public sector spending, Lithuania offers a real-time case study of the societal trade-offs.
If the Lithuanian population has yet to engage in the kind of protests seen in Ireland and elsewhere, perhaps that’s because the Lithuanian people have finally been broken sufficiently to simply accept what the government and global market deem their fate should be. Hopelessness has yielded to despair for some, fueling the increase in Lithuania’s suicide rate, which was already among the highest in the world.
For others despair yields to resignation, summed up by one Lithuanian pensioner:
Mecislovas Zukauskas, 88, a retired electrician, has lived through the devastations of World War II, the Soviet occupation and, most recently, the death of his wife. He is taking his pension cut in stride.
"The government does what it wants to do," he said. "We can do nothing."
But the NYT article offered a glimmer of hope towards the end.
The Irish are not prone to protest, but now more are being organized, inspired by the Occupy movement in the United States.
On a recent frosty night in Dublin, David Johnson, 38, an I.T. consultant, stepped outside a makeshift camp set up by the Occupy Dame Street movement in front of the Irish Central Bank.
"This is all new to Ireland," he said, pointing to tarpaulins and protest signs that urged the government to boot out the International Monetary Fund and require bondholders to share Irish banks' losses that have largely been assumed by taxpayers. "The feeling is that the people who can least afford it are the ones shouldering the burden of this crisis."
Austerity hasn’t worked in Ireland. At least not for the Irish. Here’s hopping Ireland’s Occupy movement will